Yum Brands shakes off bird flu fears

Shares rise on reaffirmed double-digit earnings growth forecast

Yum Brands struck a bullish tone for 2014 even after the fast food group reported a 5 per cent drop in fourth-quarter earnings which showed food safety concerns continued to weigh on its China division.

David Novak, chief executive, called 2013 a “challenging year” for the company behind the Pizza Hut, KFC and Taco Bell brands. However, he reaffirmed a previous forecast of double-digit earnings growth, sending shares up 4.22 per cent, to $68.95, in after-hours trading in New York.

The Kentucky-based company reported net income of $321m, or 86 cents a share excluding one-time items, for the three months to December 28. That compared with $337m, or 83 cents a share excluding one-off items, during the same period a year earlier. Revenues fell 1 per cent, from $4.18bn to $4.15bn.

Analysts had expected earnings of 80 cents a share on $4.26bn in sales.

The news comes days after Shanghai began a three-month ban on live poultry sales and as Hong Kong launched a three-week ban on Chinese poultry and killed 20,000 birds after mainland Chinese imports tested positive for bird flu.

Jonathan Blum, chief public affairs officer, said the company was “not seeing any impact nationally on our sales in China” from the fresh reports of avian flu.

Food safety concerns and an avian flu outbreak early last year sent Yum’s China same-store sales plummeting. But the company went on a marketing offensive and was thought to be recovering when it reported positive sales growth in November and December.

Same-store sales in China fell 4 per cent during the quarter, and fell 13 per cent for the full year.

The company is China’s largest western restaurant group by sales and number of outlets, with more than 4,400 KFC restaurants alone. China contributes around half of Yum’s total revenues.

Yum is not the only company being hit by bird flu concerns in China.

On Friday Donnie Smith, chief executive of Tyson Foods, the largest US meat processor by sales, said the company would slow the pace of its China expansion as mainland demand for chicken continues to suffer.

Mr Smith told analysts on a conference call that the company no longer expected to break even in China in the fiscal year ending in September. Because demand for chicken had not rebounded from the food safety and avian flu scares that began in late 2012, there was a “substantial oversupply of chicken”, he said.

“Now, there are new concerns about avian influenza,” Mr Smith said. “Because of these factors, we decided to slow down on building more chicken farms beyond those currently planned for this fiscal year until market conditions improve.”

Tyson ultimately plans to build 90 large chicken houses in China in order to supply its processing plants with quality-controlled poultry raised in sanitary conditions.

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